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Create investor behavior in kids

Posted February 19, 2014 in Advice Column

Which would you rather have — a million dollars right now, or a penny that doubles every day for a month?

If you’ve never done the math, it’s quite interesting. On Day 28, the “penny” has now doubled to more than $1.3 million. In a month with 31 days, the penny you received on Day 1 would be worth more than $10.4 million.

Makes a million seem like chump change.

Now, to be fair, this penny more than likely doesn’t exist. However, the 31 days in a month could be compared to 30 years of saving and investing. The earlier you get started with consistent “investor behavior” (that is, the behavior of investing each month), the sooner your money begins to exponentially multiply.

This is especially important behavior for young people to learn, as the sooner (and more) they save and invest, the more rapidly they can achieve a point of financial freedom. By educating your kids about the power of compounding interest, they can begin building a very substantial retirement account from a very early age.

While the question usually arises — “What should they invest in?” — in reality it doesn’t matter what they’re putting those small amounts in as long as they’re doing in routinely. The performance of those investments isn’t nearly as important as the behavior of investing consistently.

To create investor behavior, suggest that with the money your kids get for allowance, working part-time or birthdays go into an investment account. Help them set up a savings and checking account at the credit union, then help them set up an investment account through E-Trade, ScottTrade, or a local financial advisor. These services allow you to set up a once-a-month investment that will pull money directly from your kids’ checking account. Even by investing small regular amounts, your kids will begin to understand the power of investing from an early age.

So while you’re teaching your children good manners, the importance of good grades and how to change the oil in your car, add investor behavior to the list. They’ll one day thank you for it.

Information from the Iowa Credit Union Foundation, provided by People’s Credit Union, 310 First St., Webster City. For more information, call People’s Credit Union at 515-832-6346

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